Cost of Inventory- Merchandise/Goods
Cost of Inventory for merchandising company
The examples of merchandising company are as follows.
- Company purchases and sells phones, computers, scanners, LDC
- Company purchases and sells cars, motor
- Company purchases and sells furniture
- Company purchases and sells TV
Cost of inventory = purchase price-trade discount-sale return and allowance+ freight + insurance + import taxation + Specific tax (if any) + port fee + clearance cost + handling cost + other relevant costs
Note:
- Settlement discount because of early payment is excluded cost of inventory, so it is other income.
- VAT input is excluded cost of inventory if it can be claimed from VAT output when we sell inventories.
Example
ABC imports cars to sell in XYZ country. The assumption costs are as follows.
Purchase price……………………………$50,000
Import tax…………………………………$10,000
Specific tax………………………………..$5,000
VAT input………………………………….$6,500
Bank fees transferred to suppliers……$30
Port fee …………………………………….$100
VAT Input………………………………….$10
Clearance cost …………………………..$200
Transportation in……………………….$1,000
VAT input………………………………….$120
Handling cost…………………………….$100
Public Relation cost……………………$80
Required:
We assume VAT input can be claimed with VAT output. Calculate total costs of cars.
Answer
Cost of cars =50,000 +10,000+5,000+30+100+200+1,000+100= $66,430